Question

Questions 1 [40 marks]

Former President Jacob Zuma unveiled the free education plan on the 16th of December 2017. Further to that, in the 2017 budget speech, former Finance Minister Malusi Gigaba announced that an additional R57 billion over the next three years had been allocated to fund free education for students who come from families with a combined income of R350 000. This was on top of the R10 billion provisionally allocated in the 2017 budget. Furthermore, the value added tax (VAT) increased from 14% to 15% on the 1 st of April 2018.

Discuss the demand and supply sides effects of the developments on the performance of the South African economy.

a. At a macroeconomic level [20 Marks]

b. At a microeconomic level [20 Marks]

Answer 1

a. At a Macro Economic Level:

The effect on AD-AS side about this policy will be as follows

1. Increase in basic income of people overall the demand for consumption will rise and C will rise which leads increse in AD. In this situation anticipated added AD will bemore than AS which will lead to inflationary pressue on the economy or the problem of excess demand. IN this situation AD is more than AS and in order to maintain or to bring down AD central bank will rise is CRR,SLR,RR, RRR and so on. Taxes will be increased as this government has done it and publich expenditure will be curbed.

2. There are some qualitiative measures also may bemoral suasion or slective credit control policy can be adopted by the government.

3. There will be less of inventory and in order to maintain this firms will hiremore people may prodce more if economy is not already exsists on full employment.

b. At Micro Economic Level

1. Increase in basic income of people there will be mmore demand for books, stationary, educated realted material and prices of such goods may rise in future.

2. There will bemore number of enrolled at different levels of education which leads to increase in demand for different goods.